Visitors and employees of Infosys Technologies ride bicycles inside the company's campus at Electronic City in Bangalore, India, Friday, June 6, 2008. Bangalore, the capital of Indian outsourcing, is perhaps the closest India comes to Wall Street. Now that proximity, which has fueled years of growth and transformed the city into one of India's most cosmopolitan, has put Bangalore on edge. (AP Photo/Aijaz Rahi)

By Erika Kinetz, AP Business Writer

BANGALORE, India  Bangalore, the capital of Indian outsourcing, is perhaps the closest India comes to Wall Street. In some offices, you can get a U.S. dial tone. Clocks tell you what time it is in New York. Cappuccinos -- as well as Subway sandwiches and Carolina Herrera "212" perfume -- are easy to come by.

Now that proximity, which has fueled years of growth and transformed the city into one of India's most cosmopolitan, has put Bangalore on edge.

"The main market for us is still the United States. If companies are not doing good there, our job prospects are low," said Nilesh Raut, 29, a software engineer at Oracle, which has an office here.

Bangalore is full of young migrants like Raut, who snapped up tech jobs that paid more than their parents could dream of, and who, unlike their parents, made unabashed use of their credit cards. But now, as India's biggest shopping season, Diwali, kicks off, many say that until they have a better sense of how far and how deep the current crisis will cut, they'll stick to window shopping.

"We're just here for the ambiance," said Raut, strolling through Bangalore's oldest mall, Forum, foreswearing the iPods, Lee jeans, Reebok shoes and Arrow shirts on offer.

Since it opened four years ago, Forum has seen annual sales growth average 25 percent a year, according to Merveil Varghese, the mall's marketing manager. This year, she expects sales growth at the mall's 72 shops to slow to 17 to 18 percent. Rents, which quadrupled during that time, have stabilized, she said.

"Fifty percent of our customers are from the IT crowd," she said. But these days, "everybody is taking it a little cool. You can't afford to raise prices."

The mall was packed, but few people had shopping bags in their hands. Consumers have also been singed by stock market losses.

"It's not just Wall Street. It's Dalal Street," said Mansi Aneja, 30, referring to the Bombay Stock Exchange, which has lost about half its value this year. She said she's putting off buying a new car.

Dubbed the Silicon Valley of India, Bangalore and its environs account for a third of India's software services exports, according to Som Mittal, chairman of Nasscom, an industry group.

The roots of the region's tech boom can be traced back to India's first prime minister, Jawaharlal Nehru, who decided to make it the hub of the newly independent nation's defense industry, building research centers and engineering schools, according to N.R. Narayana Murti, one of Infosys' founders and now chairman of its board.

"Nehru wanted to locate defense electronics and research away from the borders with China and Pakistan, in a place at least half an hour away from the oceans," said Murti.

Infosys, which set up shop in Bangalore in 1982, and Wipro were among the first private sector arrivals, attracted by the good weather, strong education, and availability of property, Murti said. After economic reforms in the early 1990s opened the sector to foreign firms, companies like Microsoft Corp. and IBM Corp. piled in too, he said.

In the last five years, household incomes in Bangalore have grown at over 10 percent a year, according to the National Council of Applied Economic Research.

India's IT firms derive 40 percent of their global revenues from financial services clients, with 61 percent of total sales from the U.S. and 30 percent from Europe. Some of India's IT majors have already revised their sales growth forecasts for the year downwards by 5 to 6 percentage points.

However, Infosys, like other IT firms, is betting that short-term pain will give way to long term gains, as U.S. companies are forced to make deeper cost cuts and, potentially, outsource more work to India. Nandan Nilekani, co-chairman of Infosys, says Bangalore's torrid growth may slow in the short-term, but the dream will not die.

"The fundamental progress of Bangalore as an intellectual capital is there. Critical mass has been reached. It will continue," he said.

Bangalore has seen a bust before. The bursting of the dot-com bubble in 2001 resulted in a slew of layoffs. But the city, like India's IT industry itself, quickly bounced back, as budget constraints encouraged U.S. firms to outsource more work.

Asif Saud, 33, grew up in Bangalore, and over the last decade has watched his city grow faster than its snarled streets can handle, as Indians migrated from across the nation to snap up a seemingly endless supply of IT jobs.

"Doctors were trying to shift to software companies because doctors weren't paid as much," he said. "Salaries got bigger. People used to be happy with 5,000 rupees (US$102) a month. Now people are getting salaries of one or two lakh (US$2,046 to US$4,092) a month."

That money boosted the price of real estate, and fueled a rash of mall-building.

In 2001, Saud said he lost his job at a mid-size software services firm, which prompted him to start his own business building Web sites. Layoffs at Bangalore's tech giants would be great for him, he said: "We'll be able to hire expertise at a cheaper cost."

Outside the cool air conditioning and twinkling displays of the Forum sits Shankar, 29, who has been selling wash rags for 10 rupees (US$0.20) a piece at traffic lights for 12 years.

He says he's profitted from Bangalore's boom, paying for his sister's dowry and a small house for his parents. But this year he's fallen on family trouble, and got robbed by some men he'd hired to sell rags for him, he said.

"Before it was very good. Now it's worse than death," he said.

As night deepened, he sat on a curb across the street from a glowing Tata AIG Insurance sign. He's not expecting a bailout any time soon.

Wall Street? "I never heard of it," he said.

Lehman Brothers? Goldman Sachs?

Never heard of them either.

He swears he'll get out of the rag business in two years' time. How exactly, he can't quite figure.

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